Appraisals

An appraisal is an independent estimate of a property's market value. Depending on the loan program, a lender may require an appraisal as part of the mortgage process to help determine whether the property's value supports the loan amount.

Appraisals are completed by qualified appraisers who evaluate factors such as the property's condition, location, features, and comparable properties in the area.

Appraisers may use different methods to estimate a property's value depending on the type of property and the purpose of the appraisal. Three common approaches are:

• Sales Comparison Approach: The property's features and condition are compared with similar properties that have recently sold in the area. Adjustments may be made for differences such as size, location, condition, and amenities.  
• Cost Approach:  The appraiser considers the value of the land and the estimated cost to replace or reproduce the property's improvements, while accounting for depreciation.
• Income Approach – Primarily used for income-producing properties, this approach considers the income a property may generate when estimating its value.

Yes. For a first-lien mortgage, you have the right to receive a free copy of any appraisal or other written valuation developed in connection with your application.

Your lender generally must provide the copy promptly after it is completed and no later than three business days before closing. You may still be responsible for the cost of having the appraisal performed, but you cannot be charged a separate fee for receiving a copy of it.

A property's market value can be influenced by several factors, including its location, condition, features, and recent sales of comparable properties in the area.

A seller and their real estate agent may use a Comparative Market Analysis (CMA) to help determine a listing price. During the mortgage process, an appraiser provides an independent opinion of the property's market value based on their analysis of the property and relevant market data.

The listing price, purchase price, and appraised value may not always be the same.

If an appraisal comes in below the purchase price, it may affect the amount a lender is able to finance. The next steps will depend on the loan program, purchase agreement, and individual circumstances.

Depending on the situation, options may include reviewing the appraisal for possible errors or missing information, renegotiating the purchase price, adjusting the financing, or bringing additional funds to closing. Your loan officer can help you understand the options available for your specific loan.